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Policy Trade-Offs in Building Resilience to Natural Disasters: The Case of St. Lucia

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  • Mr. Alessandro Cantelmo
  • Mr. Leo Bonato
  • Mr. Giovanni Melina
  • Mr. Gonzalo Salinas

Abstract

Resilience to climate change and natural disasters hinges on two fundamental elements: financial protection —insurance and self-insurance— and structural protection —investment in adaptation. Using a dynamic general equilibrium model calibrated to the St. Lucia’s economy, this paper shows that both strategies considerably reduce the output loss from natural disasters and studies the conditions under which each of the two strategies provides the best protection. While structural protection normally delivers a larger payoff because of its direct dampening effect on the cost of disasters, financial protection is superior when liquidity constraints limit the ability of the government to rebuild public capital promptly. The estimated trade-off is very sensitive to the efficiency of public investment.

Suggested Citation

  • Mr. Alessandro Cantelmo & Mr. Leo Bonato & Mr. Giovanni Melina & Mr. Gonzalo Salinas, 2019. "Policy Trade-Offs in Building Resilience to Natural Disasters: The Case of St. Lucia," IMF Working Papers 2019/054, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2019/054
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    References listed on IDEAS

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    1. Borensztein, Eduardo & Cavallo, Eduardo & Jeanne, Olivier, 2017. "The welfare gains from macro-insurance against natural disasters," Journal of Development Economics, Elsevier, vol. 124(C), pages 142-156.
    2. Acevedo, Sebastian & Mrkaic, Mico & Novta, Natalija & Pugacheva, Evgenia & Topalova, Petia, 2020. "The Effects of Weather Shocks on Economic Activity: What are the Channels of Impact?," Journal of Macroeconomics, Elsevier, vol. 65(C).
    3. Mr. Andrew Berg & Mr. Rafael A Portillo & Mr. Edward F Buffie & Ms. Catherine A Pattillo & Luis-Felipe Zanna, 2012. "Public Investment, Growth, and Debt Sustainability: Putting together the Pieces," IMF Working Papers 2012/144, International Monetary Fund.
    4. Marto, Ricardo & Papageorgiou, Chris & Klyuev, Vladimir, 2018. "Building resilience to natural disasters: An application to small developing states," Journal of Development Economics, Elsevier, vol. 135(C), pages 574-586.
    5. De Janvry,Alain F. & del Valle,Alejandro & Sadoulet,Elisabeth Marie L., 2016. "Insuring growth : the impact of disaster funds on economic reconstruction in Mexico," Policy Research Working Paper Series 7714, The World Bank.
    6. International Monetary Fund, 2018. "St. Lucia: Climate Change Policy Assessment," IMF Staff Country Reports 2018/181, International Monetary Fund.
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Dynamic General Equilibrium modelling of tiny countries
      by Christian Zimmermann in NEP-DGE blog on 2020-08-11 14:47:26

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    Cited by:

    1. Amr Hosny, 2021. "Adapting to Climate Change in Vietnam: Insights from a Structural Model," Asian Journal of Economic Modelling, Asian Economic and Social Society, vol. 9(2), pages 145-152, June.
    2. Cantelmo, Alessandro & Melina, Giovanni & Papageorgiou, Chris, 2023. "Macroeconomic outcomes in disaster-prone countries," Journal of Development Economics, Elsevier, vol. 161(C).

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